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The turnaround in the US Dollar is getting a lot of attention in the wake of Fed Chair Jerome Powell’s testimony to the House Financial Services Committee. Accordingly, traders have been giving a nod to EUR/USD for the change in direction. Yet given USD/JPY’s ongoing losses, there is a strong argument to be made that EUR/JPY may be more vulnerable to losses than its USD-pair counterpart. The same can be said for GBP/JPY with respect to GBP/USD.
The fact is, even in this rising rate environment, a drop in risk appetite – when global equity markets fall – has tended to favor the Japanese Yen over the US Dollar. Recent BOJ commentary regarding more easing (implicitly to combat Yen strength) has fallen on deaf ears; it will take more than verbal jousting to convince market participants that this risk unwind favoring the Yen is unsustainable.
Position: Short EUR/JPY
Entry: Sell rallies into 131.15
Stop: 131.90 (trailing above daily 13-EMA).
Target 1: 129.40 (September swing low)
Target 2: 127.60 (August swing low)
Timeframe: Several days to a few weeks
Chart 1: EUR/JPY Daily Timeframe (August 2017 to February 2018)
Position: Short GBP/JPY
Entry: Sell below 146.95
Stop: 150.25 (trailing above daily 21-EMA).
Target 1: 139.30 (June and August 2017 swing lows)
Timeframe: Several weeks
Chart 2: GBP/JPY Daily Timeframe (May2017 to February 2018)
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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